Securities and Exchange Commission (SEC): Report of Investigation Regarding SEC's Response to FOIA...

8/7/2019 Securities and Exchange Commission (SEC): Report of Investigation Regarding SEC's Response to FOIA Requests: 1

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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients of this report should not disseminate or copy it without the InspectorGeneral'sapproval.

REPORT OF INVESTIGATIONUNITED STATES SECURITIES AND EXCHANGE COMMISSIONOFFICE OF INSPECTOR GENERAL

Case No. OIG543Investigation Concerning the Role of Political Appointees in the SEC'sResponse to Record Requests Pursuant to the Freedom of InformationAct and From Members ofCongress

December 3, 2010


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REDACTION KEY

PII = Personal Identifying Information

Protected by FOIA Exemptions (b)(6) & (b)(7)(C)


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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients or this report should not disseminate or copy it without the InspectorGeneral'sapprovaL

REPORT OF INVESTIGATIONUNITED STATES SECURITIESAND EXCHANGE COMMISSIONOFFICEOF INSPECTOR GENERAL

Case No. OIG543Investigation Concerning the Role ofPolitical Appointees in the SEC'sResponse to Record Requests Pursuant to the Freedom of InformationAct and FromMembers ofCongress

Introduction and Results of InvestigationOn September 2, 2010, the Securities and Exchange Commission ("SEC" or"Commission") Office of Inspector General ("DIG") opened an investigation in responseto an August 23,2010 letter from Senator Charles Grassley and Congressman DarrellIssa, requesting that OIG conduct an inquiry into the SEC's.Office of Freedom OfInformation Act ("FOIA") Services to determine whether, and if so, the extent to which,political appointees are made aware of information requests and have a role in requestreviews or decision-making. This letter from Senator Grassley and Congressman Issacited a press report that the Department ofHomeland Security political appointeesreviewed requests for federal records by lawmakers, journalists, activist groups orwatchdog organizations.The DIG investigation did not find evidence that political appointees at the SEChave played an improper role in the agency's review of or response to FOIA requests.Although the DIG .investigation found that the SEC's responses to requests by membersof Congress for DIG reports are subject to review and approval by the agency's fiveCommissioners, who are political appointees, the DIG did not find the limited role playedby the Commissioners in this process to have had a political impact on the SEC's

responses to requests for the DIG reports.Scope of Investigation

The DIG requested the e-mails of employees who may have sent, received, orbeen copied on e-mails relevant to this investigation, for the time period pertinent to theinvestigation. The e-mails were searched using specialized computer search tools


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This document is subject to the provisions of the Privacy Actof 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients ofthis report should not disseminate or copy it without the Inspector General'sapproval.throughout the course of the investigation. The OIG estimates that it obtained andsearched over 137,000 e-mails during the course of its investigation.

The OIG took the sworn, on-the-record testimony of the following current SECemployees:

1. , Bran nager, Office ofFOIA Services, taken onOctober 15, 2010, ( Testimony Tr.) attached as Exhibit 1.2. , Branch Manager, Office of FOIA Services, taken onOctober 18, 2010, ( Testimony Tr.) attached as Exhibit 2.3. , Office of FOIAServices,taken on October 18,2010, ( Testimony Tr.) attached as

Exhibit 3.4. Office ofthe Chainnan, taken on October 19,2010, ( TestimonyTr.)

attached as Exhibit 4.5. BranchManager, Office of FOIA Services, taken onOctober 20, 2010, ( Testimony Tr.) attached as Exhibit 5.6. Office of FOIA ServiCes, taken onOctober 26,2010, ( Testimony Tr.) attached as Exhibit 6.7. Senior Advisor to the Chairman, Office of the Chairman,

taken on October 27,2010, ( Testimony Tr.) attached as Exhibit 7.8. Celia Winter, FOIA Officer, Office of FOIAServices, taken on October

28,2010, (Winter Testimony Tr.) attached as Exhibit 8.

9. Barry WaIters, Chief FOWPrivacyAct Officer, Office of FOIA andRecords Management Services, taken on October 28, 2010, (WaltersTestimony Tr.) attached as Exhibit 9.10. Office of the GeneralCounsel, taken on November 4,2010, ( Testimony Tr.) attached as

Exhibit 10.2


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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients or this report should not disseminate or copy it without the Inspector General'sapproval.

11. Office of Legislat ovember 4, 2010, TestimonyTr.) attached as Exhibit 11.12. Elizabeth Murphy, Secretary, Office of the Secretary, taken on November12,2010, (Murphy TestimonyTr.) attached as Exhibit 12.13. Office of the Secretary, taken onNovember 15, 2010, TestimonyTr.) attached as Exhibit 13.In addition, the OIG obtained and reviewed numerous documents from the Officeof FOIA Services ("FOIA Office"), including documents describing the process forresponding to FOIA requests and a list of FOIA liaisons throughQut the agency. The OIGalso obtained and reviewed a list of all SEC political appointees from the Office ofHuman Resources ("ORR").

Relevant Legal StandardThe Commission's regulations require its employees to perform their dutiesimpartially and independently, without regard to partisan or popular demands. 17 C.F.R.

200.58 states:[T]his is an independent Agency, and in performing theirduties, members should exhibit a spirit of firmindependence and reject any effort by representatives of theexecutive or legislative branches of the government toaffect their independent determination of any matter beingconsidered by this Commission. Amember should not beswayed by partisan demands, public clamor orconsiderations of personal popularity or notoriety.

In addition, 17 C.F.R. 2oo.735-2(a) states:The Securities and Exchange Commission has beenentrusted by Congress with the protection of the publicinterest in a highly significant area ofour nationaleconomy. In view of the effect which Commission action

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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients of this report should not disseminate or copy it without the Inspector General'sapproval.frequently has on the general public, it is important thatmembers, employees and special Government employeesmaintain unusually high standards of honesty, integrity,impartiality and conduct. They must be constantly aware ofthe need to avoid situations which might result either inactual or apparent misconduct or conflicts of interest and toconduct themselves in their official relationships in amanner which commands the respect and confidence oftheir fellow citizens.

Results of the InvestigationI. The FOIA Process

As noted on the SEC's public website, FOIA provides that any person has theright to request access to federal agency records or information. See "SEC FOWPAProgram," http:Uwww.sec.gov/foia.shtml.attachedasExhibitI4.at1. All agencies ofthe United States government are required to disclose records in response to a writtenrequest, except for those records that are protected from disclosure by the nineexemptions and three exclusions of FOIA. Id.This section discusses the routine process employed by the SEC to respond tomost FOIA requests. The OIG found the SEC's process for responding to FOIA andCongressional requests for OIG reports to differ from the process for other FOIArequests. Sections II. and III. below address the agency's process for responding torequests for OIG reports.A. The Role of the FOIA OfficeThe SEC's intranetwebsite describes the FOIA Office as "responsible forreceiving and responding to requests for nonpublic records under the Freedom ofInformation Act." "Office of Freedom of Information Act (FOIA) and RecordsManagement Services," http://intranet.sec.gov/divisions officeslhgo/ofrms/ofrms-home.html, attached as Exhibit 15. SEC FOIA Officer Celia Winter testified that theFOIA process at the SEC is centralized and that every FOIA request "that comes into theagency comes into the FoiA office." Winter Testimony Tr. at 8-9.

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This document is subject to tbe provisions ortbe PrivacyAct or 1974, and may require redactionberore disclosure to tbird parties. No redaction bas been performed by the Office or InspectorGeneral. Recipients or this report should not disseminate or copy it without the Inspector General'sapproval.FOIA Branch Manager testified tliat, upon receiving a FOIA request

from the public, Winter or one of the four FOIA Of nchmanagers reviews therequest to make sure it qualifies as a FOIA request. Testimony Tr. at 12. Next, theFOIA Office categorizes the FOIA request by type of request and type of requester, atwhich point Winter assigns an individual in the FOIA Office to respond to the request.Wa monyTr. at 12, 14; W imonyTr. at 9; Testimony Tr. at 1213; Testimony Tr. at 10; Testimony Tr. at 8. The FOIA Office thengathers the responsive records, analyzes the records for FOIA exemptions, and releasesthe records that the FOIA Office find to be privilege Testimony Tr. at12 rTestimony Tr. at 9; Testimony Tr. at 10 Testimony Tr. at11 Testimony Tr. at 8. testified that hede hether information should be reda m a response to a FOIA request byusing the standards set out in the FOIA statute. Testimony Tr. at 11.

As noted above, as part of this investigation, the OIG requested and received fromOHR a list ofall SEC employees who are political appointees. Ust of PoliticalAppointees, attached as EXhibit 16. The list of political appointees provided by OHRindicates that none of the FOIA employees or managers were politically appointed.Exhibit 16.B. The Role of the Office of the General Counsel in the FOIA ProcessTheOffice of the General Counsel ("OOC") adjudicates appeals of initial FOIAdeterm e FOIA Office. Walters Testimony Tr. at 15; Testimony at12-14; Testimony Tr. at 14; Testimony Tr. at 9-10. WPrivacyAct Officer Barry Walters and FOIA Branch Manager testified that the FOIA Office occasionally co OGe in making itsdeterminations. Walters TestimonyTr. at 15; Testimony at 13.

testified that, from his perspective, in matters in which OGe plays a role,OGC's involvement tends to delay the response to ForA request t "[s]ometimes rhave a hard time getting a response, depending on what r need." Testimony Tr. at42. Winter also testified that the participationofOGC tends to slow the SEC's responseto a FOIA request. Winter Testimony Tr. at 45-46.

The list of political appointees pravided by OHR indicates that none of the OGCemployees ormanagers involved in the FOIA process were politically appointed. Exhibit16.

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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients orthis report should not disseminate or copy it without the Inspector General'sapproval.C. The Role of the Office of the Chairman in the FOIA Process

for the Office of theChairman, testified that is responsible for coordinating responses ueststhat are referred to th the Chairman from the FOIA Office. Testimony Tr. at 10. testified that these referrals are only for FOIA requestsfor documents that may be in the possession of the Office of the Chairman. Id. to the Chairman and the supervisor of the testified that he does not see FOIA requests for documents unlessthey are for records in the custody of the Office of the Chairman. Testimony Tr.at 9-10,18.testified that has never had a situation inwhich someone in theOffice of the C d her that a record should not be produced in connection with aFOIA request. Testimony Tr. at 16. testified that the Office of theChairman decided that the FOIA Office, not the Office of the Chairman, would make theredaction decisions with respect to d s in the possession of the Office of theChairman requested through FOIA. Testimony Tr. at 17-18. .

Winter testified that the Office of the Chairman is only consulted in connectionwith a FOIA request if the Office of the Chairman needs to conduct a search forresponsive records. Winter Testimony Tr. at 15-16. Walters testified that the Office ofthe Chairman does not play any role in the FOIA process, and that he is not aware of anysituation inwhich a Commissioner or anyone in the Office of the Chairman has everdictated to him about the release of a document he was reviewing in connection with theFOIA exemptions. Walters Testimony Tr. at 15, 46. Office of Legislative andrgovernmentalAffairs ("OLIA") testified that did not have any knowledge or information about Chairman Schapiro, theCommissioners, or any political appointees at the Commiss ing any role ininfluencing any decision by the SEC staff relating to FOIA. Testimony Tr. at 8, 9.

testified that did not recall any situations inwhich the Office of theChairman reviewed a FOIA matter that did not involve documents in the Office of theChairman's possession or control. Testimony Tr. at 22. testified that, to knowledge, none of the FOIA requests that has been involved with were reviewed bythe Commissioners. Id. at 30. testified that the FOIA Office does not usuallyinteract with the Office of the Chairman concerning FOIA ma s the Office of theChairman possesses the records at issue in the FOIA request. Testimony Tr. at13-14, 17. FOIA Branch Manager testified that he has not had a situation

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This document is subject to the provisionsof the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been perfonned by the Office of InspectorGeneral. Recipients of this report should not disseminate or copy It without the InspectorGeneral'sapproval.in which the FOIA Office notified the Office of the Chairman about equestunless it involve man. TestimonyTr. at 11. FOIA testified that he was notaware of any requirement or suggestion that the Commission approve responses to FOIArequests. Testimony Tr. at 17.

The list of politically appointed individuals provided by OHR includes the SEC'sChiefof Staff, Didem Nisanci, and its Director of Communications, Myron Marlin, bothofwhomwork in the Office of the Chairman. Exhibit 16. Based upon its review ofdocuments and testimony ofwitnesses, the 01G did not find Nisanci or Marlin to haveplayed any e ssof ding to FOIA requests. Walters, Winter, and all testified that they have not had anycontact with Nisanci orMarlin concerning FOIAmatters. Walt onyTr. at 20;Wi yTr. at 20-21; estimonyTr. at 18; Testimony Tr. at16; Testimony Tr. at 17; TestimonyTr. at 34-35. testifiedthat Marlin is given notice of responses to FOIA requests prior to their release by theSEC, but he could not y instance in which Marl ed concerns aboutreleasing information. Testimony Tr. at 22-23. testified that he has neverknown Chairman Schapiro to have played a role in the release of a FOIA report. Testirpony Tr. at 35. Winter testified that she has never communicatedwith ChairmanSchapiro regarding FOIA matters. WinterTestimonyTr. at 22. who has played a role in theredaction process for OIG reports requested by members of Congress, testified that he hasnever had a conversation with Chairman Schapiro or iabout redactions toentssought under FOIA or through Congress. Testimony Tr. at 8, 51-52.also testified that he did not recall ever having a conversationwith Marlinconcerning redactio cuments, but that itwas possible that such conversationsoccurred. Id. at 51. testified that the Office of the Chairman has not beeninvolved in the reda ocess for reports requested either by Congress or under FOIA,apart from involvement by Kayla Gillan, SEC Deputy Chiefof Staff, "at a very collateralor high level." Id. Winter testified that Gillanwas involved in FOIA matters for a periodtime during a transition period for one of the FOIAOffice managers. Winter Testimony

Tr. at 21. Winter testified that Gillan's concern was with consistency and communicationissues, not particular redactions or FOIA requests. Id. at 21-22. Walters testified thatwhen he first began in his position as Chief FOINPrivacy Act Officer, he may havediscussed a FOIA matter with Gillan, but that neither Gillan nor anyone else in the Officeof the Chairman has expressed to him that certain information should or should not beredacted or released pursuant to a FOIA request. Walters Testimony Tr. at 21.7


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This document is subject to the provisions of the Privacy Actof 1974, and may require redactionbefore disclosure to third parties. No redaction bas been performed by the Office of InspectorGeneral. Recipients or this report should not disseminate or copy it without the InspectorGeneral'sapproval.TestimonyTr. at 11-12. Winter and testified that OPA has not taken anactive role in determining how documents sho redacted or rele e FOIAprocess. Winter Testimony Tr. at 16; Testimony Tr. at 58-59 estified thathe was not aware of any communications or consultation withOPA concerning theredaction process. TestimonyTr. at 70. Walters testified that he does not know ofany situations in which OPA provided advice on whether a document should be redactedor released. Walters Testimony Tr. at 18-19.

testified that neither OPA nor any other SEC office has asked the FOIA econsider a withholding decision in response to a FOIA request.Testimony Tr. at 17-18. testified that he is not aware of anyoccasions in which it received feedback from OPA concerning a response to a FOIArequest. Testimony Tr. at 12. testified that although the FOIAOffice gives notice to various offices such as OGC, OUA, OPA, or the Office of theChairman before responding to certain FOIA requests "as a courte ficemakes the final decisions as to how to respond to a FOIA request. Testimony Tr. at 19-20.The list of political appointees provided by OHR indicates that none of the OPAemployees or managerswere politically appointed. Exhibit 16.

II. The Process for Responding to Congressional Requests for OIG InvestigativeReportsOnAugust 30,2010, circulated a protocol ("the protocol") to the FOIAoffice, OGC, OLIA, OPA, and other offices, titled "Procedures for Responding toCongressional Requests for DIG Investigative Reports." August 30, 2010 E-mail from to BarryWalters, attached as Exhibit 19. The protocol states that it hasbeen prepared by OGC and the FOIA Office, in consultationwith OIG, OLA and OPA.

Id.Winter testified that either Gillan or General Counsel DavidBecker suggested that

the SEC have a protocol to handle Congressional requests for documents, becausecongressional requests were being processed differently from FOIA requests. WinterTestimony Tr. at 24. estified that he belie Becker had directed that thisprotocol be prepared. Testimony Tr. at 18. testified that, to the best of hisknowledge, no Commissioner reviewed or gave feedback on this protocol. Id. at 19-20.

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This document is subject to the provisions of the Privacy Actof 1974, and may require redactionbefore disclosure to third parties. No redaction bas been performed by the Office of InspectorGeneraL Recipients of this report should not disseminate or copy it without the InspectorGeneral'sapproval.The protocol states that it is intended to establish infonnal procedures forresponding to Congressional requests for OIG reports "where the request does not comefrom a Committee or Subcommittee and where the requested reports have not previouslybeen publicly released under [FOIA]." Exhibit 19 at 1. Walters testified that he did notrecall seeing a request from a Congressional co since coming to work at the SECin October 2009. Walters Testimony Tr. at 29. testified that requests by a memberof Congress on behalf of a constituent are as FOIA requests and are processed inthe same manner as other FOIA requests. Testimony Tr. at 36-37.A. The Role of the FOIA Office and OGC in Responding toCongressional Requests for OIG Investigative ReportsThe protocol states that, upon receipt of a Congressional request for an OIGreport, the FOIA Office should prepare a draft redacted report within 14 calendar days ofreceipt of the request. Exhibit 19 at 1. The protocol further states that OGC shouldreview the proposed redacted report, and that when OGC and the FOIA Office havereached agreement on the redactions, OGC should provide a copy of the proposedreleasable report to the OIG for review. [d. at 2.

the FOIA Office's is assigned to respond torequests for OIG reports, am erFOIA requests. Testimony Tr. at 10;Walters Testimony Tr. at 14; Testi t 14,25; onyTr. at10; Testimony Tr. at 12, 21; Testimony Tr. at 9. testifiedthat dictates the process for responding to Congressional requests for OIGreports. Testimony Tr. at 12. testified that whenever there is either a FOIArequest or a request member of Congress for an OIG report, the FOIA Officeconsults with OGC. Testimony Tr. at 12-13. In describing the collaborative effortby OGC and the FO ce to redact an OIG report released to Congress and the publicin April of this year, edthat the redactions to this report were "done by thefour corners of the FOIA." Testimony Tr. at 47.

also testified that OGC detennined the redactions for the response to oneparticular Congressional request for an investigative report issued by the OIG inSeptember of this year. Testimony Tr. at 17. testified that in that instance,he had "zero" input in the redaction process for this ort, and that he was notaware of the FOIA Office playing a role in these redactions. [d. at 19. testified,however, that there were no FOIA requests for this report, only a Congressional request.[d. at 17. testified that he thought that the FOIA Office should have had someinvolvement with the redaction process for this OIG report at the beginning of the

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This document is subject to tbe provisions of tbe Privacy Act of 1974, and may require redactionbefore disclosure to tbird parties. No redaction bas been performed by tbeOffice of InspectorGeneral. Recipients of tbis report sbould not disseminate or copy it witbout tbe Inspector General'sapproval.process, "[b]ecause the protocol says you should have involvement in the beginning." Id.at 20. testified that he believed there was a "lack ofobservance" of the"Procedures for Responding to Congressional Requests for OIG Investigative Reports"protocol in the lack of involvement of the FOIA Office in redacting the response to therequest for this report. Id. at 38.

B. The StandardApplied to Responses to Congressional RequestS forOIG Investigative ReportsAccording to the protocol, OGC and the FOIA Office should propose redactionsthat are consistent with FOIA, the Privacy Act, and the 2009 directives of the Presidentand the Attorney General that agencies should administer FOIA with a presumption infavor of disclosure and strive for open government and transparency. Exhibit 19 at 2.The protocol also stated that, "OOC and the FOIA Office should seek to identify andpreserve all privileged information, such as law enforcement, deliberative process, andthird-party non-public financial material." Id. The protocol further states that, "[i]nconsultation with the OLA, the OGC may recommend (or the Commission may direct)that the staff release certain non-public, privileged information that the Commissioncould in its discretionwithhold." Id.

testified that he understood OGC to use FOIA principles in determiningwhat information to redact from OIG reports requested by amember of Congress. Testimony Tr. at 28-29, 47. also testified that there have been times whereOGChas "taken, to the extent that it didn't harmCommission operations, a generous view ofwhat could be released under the deliberative process," and that such decision are madeby OGC "in heavy consultationwith the appropriate divisions" at the SEC "aboutwherewe can draw the line without impairing, for instance, general law enforcement proceduresor ... a specific law enforcement matter." Id. at 47-48. testified that, "[fJrom whatI see, when I have teamed up [with OGC] it's generally a tandard" that is appliedto responses to Congressional requests from information. Testimony Tr. at 22. testified that, from his perspective, he applies FOIA exemptions to reports that arethe subject of a Congressional request in the same manner that he applies them to .FOIArequests. Id. at 56-57. testified that he did not know whether the Commission is legally requiredto provide any information in connection with a request by a Congressman, but that hethought that, at a minimum, amember of ssis entitled to what a member of thegeneral public is entitled to under FOIA. Testimony Tr. at 29-30. Winter testifiedthat, although "FOIAredactions really don't apply in a congressional release," OGC and

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This document is subject to the provisionsof the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneraL Recipients of this reportshould not disseminate or copy It without the InspectorGeneral'sapproval.other offices may apply other exemptions to records requested by Congress. WinterTestimony Tr. at 25, 29-30. Walters testified that the SEC cannot withhold portions of adocument requested by amember of Congress on the basis of FOIA, but that the SECdoes withhold information in such circumstances by "conceptually using the sametheories that ... were it to get out into the public, it would have harm on an ongoinginvestigation, or it would invade somebody' rivacy, or reveal classifiedinformation." Walters Testimony Tr. at 27. testified that it is "a little curious"for an agency to produce a document to Congress with the same redactions under FOIAas that produced to the media, because it was his understanding that Congress candemand to see agency documents while media request responses are governed by FOIAexemptions. Testimony Tr. at 26-27.

5U.S.C. SS2(d) ofFOIA states: "This section is not authority to withholdinformation from Congress." However, someFederal departments and agencies haveinterpreted this exemption from FOIA to only apply to requests from a Congressionalcommittee or subcommittee, not to requests from individual members of Congress. See,e.g., June 24, 2002 letter from the United States Environmental Protection AgencyInspector General to RepresentativeJohn D. Dingell, attached as Exhibit 20;"CongressionalAccess Under.FOIA," FOIA Update, Vol. V, No.1 (1984), attached asExhibit 21.C. Commission Review ofCongressional Requests for OIG Investigative

ReportsThe protocol also sets forth the procedure for Commission review of proposedresponses to Congressional requests for OIG reports. According to the protocol:

OGC should draft an action memorandum for seriatimcirculation to the Commission that seeks Commissionapproval for release of the redacted report to theCongressional requester, any FOIA requesters, and undercertain circumstances, the general public. If the views ofthe OIG have not been fully accommodated to the OIG's'satisfaction, the OGC should afford the OIG theopportunity to include a rider with the action memorandumthat identifies and e x p l ~ i n s any of the OIG's disagreements.Nothing should be released until the Commission hasauthorized the disclosure of the report. In the event that thestaff is recommending the Congressional requester be

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This document is subject to the provisionsof the PrivacyActof 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by theOfficeof InspectorGeneraL Recipients of this report should not disseminate or copy it without the InspectorGeneral'sapproval.provided a version of the report with fewer redactions thana version that has been orwill be provided to someone whohas requested the same document under the FOIA, theCommission should be so informed.

Exhibit 19 at 3. testified that these action memorandum recommendations to theCommission are usually a combination of the work ofWalters, Associate GeneralCounsel Richard Humes, and Deputy General Counsel Mark Cahn. Testimony Tr.at 14. testified that it had been his experience that, even prior to this protocol'scirculation, responses to Congressional requests for an OIG report had been reviewed bythe Commission before release, apart from one report in early 2010 for which' staffingshortages had delayed release of a redacted of this OIG report to a member ofCongress in a timely fashion. Id. at 15-16. testified that this OIG report, whichaddressed allegations of a conflict of interest, improper use of non-public information,and a failure to take sufficient action against Allied Capital Corporation ("Allied OIGReport"), was released under the authority delegated by regulation to OGC. Id. at 15-16.wrote in a March 17,2010 e-mail to Walters that this delegated authority derivesfrom 17 C.F.R. 200.30-140)(1). March 17,2010 E-mail from to BarryWalters, attached as Exhibit 22. The regulation states, in part:[T]he Securities and Exchange Commission herebydelegates, until the Commission orders otherwise, thefollowing functions to the General Counsel of theCommission, to be performed by him or her or under his orher direction by such person or persons as may bedesignated from time to time by the Chairman of theCommission: ... To administer the provisions of 240.24c-lof this chapter; provided that access to nonpublicinformation as defined in such section shall be providedonly with the concurrence of the head of the Commissiondivision or office responsible for such information or thefiles containing such information.

17 C.F.R. 240.24c-l(b) states, in part:The Commissionmay, in its discretion and upon a showingthat such information is needed, provide nonpublic

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This document is subject to the provisions of the Privacy Act of 1974, and may require redaction

before disclosure to third parties. No redaction has been performed by the Office of Inspector

General. Recipients of this report should not disseminate or copy it without the Inspector Generals

approval.

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information in its possession to any of the following

persons if the person receiving such nonpublic informationprovides such assurances of confidentiality as the

Commission deems appropriate: (1) A federal, state, local

or foreign government or any political subdivision,

authority, agency or instrumentality of such government.

wrote in his e-mail to Walters that, we have consistently interpreted the cross-

reference involving CFR 240.24c-1 to include Congress and its members. Id.

testified that, although OGC released the Allied OIG report pursuant to its

delegated authority with sort of a tacit approval of the Commissioners, a number ofCommissioners voiced their concern that they did not want OIG reports to be released

without Commission review on a repeated basis. Testimony at 15-16.

testified that either the Secretary or the Deputy Secretary informed him that the

Commissioners were concerned about OGC using its delegated authority to release OIG

reports in response to Congressional requests without Commission review. Id. at 55-57.2

also testified that one of the Commissioners counsels may have expressed interest

in reviewing responses to Congressional requests because of the Privacy Act concern

and the potential to impede ongoing law enforcement matters. Id. at 57. In a March 30,

2010 e-mail to Walters and others concerning the release of another OIG report pursuant

to a request by a member of Congress, wrote: I do not believe GC will be usingits delegated authority on this matter given the sensitivities the Commissioners haveexpressed for OIG reports. March 30, 2010 E-mail from to BarryWalters, attached as Exhibit 23.

testified that, as part of the Commission review process of responses to

Congressional requests for OIG reports, Commissioners have had discussions with OGC,

2SEC testified that recalled a conversation with in

which told that understanding was that OIG reports needed to go through the Commissionfor approval, that the delegated authority to OGC was limited to FOIA requests, and that should getan opinion from Associate General Counsel Richard Humes group as to whether that delegation of

authority applied to other requests for nonpublic information. Testimony Tr. at 19-20.

testified that could not recall ever having a conversation with a Commissioner or Commissionerscounsel about whether OIG reports should be released with or without Commission approval, and that statements to on this topic were not based upon any information that had received from aCommissioner or a Commissioners counsel. Testimony Tr. at 18-20. SEC Secretary ElizabethMurphy testified that she did not make any communication to expressing the preference of one ormore Commissioners to review requests from Congress for OIG reports. Murphy Testimony Tr. at 11-12.


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n is document is subject to the provisions of the Privacy Actof 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients of this report should not disseminate or copy it without the Inspector General'sapproval.particularly about privacy and whether the identity of certain individuals should be leftunredacted. Testimony Tr. at 35-36. testified that, to the best of hisknowledge, the only objections raised by Commissioners to proposed redactions orrequests made for additional redactions to a report requested by bothCongress and aFOIA requester have concerned the identity of employees ''falling within the PrivacyAct's sphere." Id. at 35.

On March 3, 2010, wrote in an e-mail concerning the response to a FOIArequest for an OIG report that "several of the Commissioners have expressed the viewthat even a heavily redacted version o ld be inappropriate for publicrelease." 2010 E-mail from to Joan McKown, attached asExhibit 24. testified that, based upon his observations of the Commission reviewprocess for OIG reports requested by a member of Congress, the only concerns expressedby the Commissioners relate to whether-materials might "impa forcementfunctions or the Privacy Act interest ofindividuals." [d. at 57. testified that noneof the Commissioners or their counsel have asked about the party affiliation of therequester of the document, and that he did not find the Commission review to constitute apolitical review. Id. at 58-59.TheOIG found testimony that the concerns expressed by Commissionersin connection with rele G reports to members ofCongress were limited to theprivacy of individuals and the compromise of ongoing law enforcement matters to besupported by other documents and testimony in this investigation. In connection with theapproval of the release of an OIG report in April of this year, wrote in an e-mail toa counsel to Commissioner Elisse Walter:

Kayla [Gillan] ended up talking directly withCommissionerWalter. What we have decided to do isredact junior level [non-SEq employees who have notbeen publicly named in a Government or Commissionaction, and who are not otherwise already publiclyassociated with the ... matter. That means thatapproximately 7 of the 18 [non-SEq employees identifiedin the OIG report will have their names redacted.

April 15, 2010 E-mail from to attached as Exhibit25. On one occasion, CommissionerTroy Paredes added a rider to the actionmemorandum authorizing release of the redacted version of this OIG report that wasapproved by the Commissioners and incorporated into the authorization, resulting in the15


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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction has been performed by the Office of InspectorGeneral. Recipients of this report should not disseminate or copy it without the Inspector General'sapproval.redac o evelnon-SEC employees. April 15, 2010 E-mailfrom to attached as Exhibit 26; Testimony Tr. at63-65.

III. The Process for Responding to FOIARequests For OIG InvestigativeReportsA. The Process for Responding to FOIARequests for an OIGInvestigative Report When There Is No Congressional Request for theSame Report

testified that he was not aware of any separate written guidan ningthe process for FOIA requests for OIG reports. Testimony Tr. at 13. testified that if there is a FOIA request for an OIG report for which there is noCongressional request, the SEC's response is a collaborative process between the FOIAOffice and OGC. Id. at 15. Walters testified that when reviewing an OIG report forrelease under FOIA, he applies the FOIA exemptions in preparing a response. WaltersTestimony Tr. at 31.testified that, if there is a FOIA request for an OIG report for which there isno Congressional request, the request "proceeds through the FOIA process" and the

responsive documents "are released under the authority of the FOIA Office to re matters to the general public, pursuant to the appropriate redactions under law." Testimony Tr. at 16. Walters testified that he did not know of an occasion in which theCommissioner reviewed or was consulted concerning a document for release inconnectionwith a FOIA request inwhich there was no Congressional request. WaltersTestimony Tr. at 33,35. to the Chairman testified thathe has not had any involvement in the process to determin onto redactfrom a response to a FOIA request for an OIG report. Testimony Tr. at 19.B. The Process For Responding to FOIARequests for an OIGInvestigative ReportWhen There is a Congressional Request for the

Same ReportThe protocol states: "Once disclosure has been made to a memberofCongress ...,the FOIA Office will provide an identical redacted version to any FOIA requesters (albeitwith citations to the appropriate FOIA exemptions) unless the Commission determines

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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to third parties. No redaction bas been performed by the Office of InspectorGeneral. Recipients of this report should not disseminate or copy it without the Inspector General'sapproval.that an alternate version of the report is appropriate in response to FOIA requests."Exhibit 19 at 4. The protocol further states:

I f the FOIA Office has received more than 3 requests forthe report, or believes that the public interest is sufficient,the FOIA Office should consult with OPA, which willconsult with the Chainnan's Office as appropriate todetermine whether the redacted report should be posted onthe Commission'sweb page."Id.

Walters testified that his u n ~ e r s t a n d i n g of the SEC's current position in situationswhere there are both a Congressional request and a FOIA request for a document was toensure that the same redacted document is released to Congress as that released to theFOIA requester. Walters Testimony Tr. at 29. Walters testified that this understanding isprimarily based on conversations with Gillan. [d. Winter and testified that, insituations where there are both a Congressional request and a FOIA request for adocument, "the goal" is for the same redacted document to be released to both Congressand the FOIA requester. WinterTestimony Tr. at 24-25; Testimony Tr. at 20-21.Winter testified that although the SEC has in the past released a differently redactedversion of an OIG report to a Congressional requester than that released to a FOIArequester, the SEC has not done so since the protocol was circulated. WinterTestimonyTr. at 51. testified that, in cases where there is a Congressionalrequest and aFOIA req the same document, the same redacted document is released to bothCongress and the FOIA requester. Testimony Tr. at 16-17.3

ConclusionThe OIG investigation did not find evidence that political appointees at the SEChave played an improper role in the review of or response to FOIA requests for SECrecords. The OIG investigation found that the SEC's responses to requests by members ofCongress for OIG reports are subject to review and approval by the agency's five

Commissioners,who are political appointees, and that, because of the agency's effort to3 testified that, in his experience at the as a FOIAOfficer, if therewere both a FOIA request and a request from a Congressional committee or committee member for thesame document. the process for the FOIA request would be handled by the FOIA Office, while the requestfrom the Congressional committee or committee member would be handled in a different process, mostlikely by the Office of Legislative Affairs. Testimony Tr. at 24-25.

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This document is subject to the provisions of the Privacy Act of 1974, and may require redactionbefore disclosure to tbird parties. No redaction has been performed by tbe Office of InspectorGeneral. Recipients of tbis report should not disseminate or copy it without the Inspector General'sapproval.provide the same response to FOIA requesters as that provided to members of Congressrequesting an OIG report, the Commission's review process of requests by members ofCongress for OIG reports affects the responses to FOIA requests for these same OIGreports. However, the OIG investigation did not find that the limited role played by theCommissioners in the process of responding to requests by members of Congress for OIGreports to have had a political impact on the SEC's response to these requests.

A copy of this report is being provided for informational purposes to the DeputyChief ofStaff to the Chairman, Commissioner Paredes, CommissionerWalter, theGeneral Counsel, the Chief Operating Officer, and the ChiefFOWPrivacyAct Officer.

Submitted: Date:Concur: Date: 1;2/3 hoI 0r rApproved: Date: D ~ ( . 5,? 61 t )

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